mergers, acquisitions and restructuring, week 3
TRANSCRIPT
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7/28/2019 Mergers, Acquisitions and Restructuring, Week 3
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MERGERS, ACQUISITIONS ANDRESTRUCTURINGWeek 3Babtan, Paun, Policarpo
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CORPORATE DIVESTITURE
Divestiture
Involuntary Voluntary
Underperforming
Underpositioned
Strategymisfit
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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION
What do companies want out of a divestiture?
Getting value for their assets is the top goalnegotiating a good price matters;
Minimizing disruption to the business is another big concthe level of chaos such transactions may create in the existingbusiness;
Closing the deal quickly and using managements timeefficiently
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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION
Importance of outcomesthat characterize asuccessful divestiture
Factor accgreatest v
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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION
Factors that may lower the probability of success
Involvement of corporate development team in divestitures
Frequency of evaluating portfolio for potential divestitures
Adequacy of resources devoted to executing divestitures
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DIVESTITURES:DRIVING VALUE THROUGH SEPARATION
Some important steps in preparing to separate out part o
Make sure that all the stakeholders are aligned;
Create a plan for how the divestiture will happen, function by function;
Do due diligence on yourself;
Savvy leaders view divestit
essential core competenc
organization and embrace
portofolio optimization
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LEVERAGED BUYOUTS (LBO)
Financial dictionaries define a leveraged buyout (LBO) as a debt-financed transaction,
typically via bank loans and bonds,
aimed at taking a public corporation private.
Because of the large amount of debt relative
to equity in the new corporation, these bonds
are typically rated below investment-grade, and
are properly referred to as high-yield or junk bonds.
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LEVERAGED BUYOUTS (LBO)
LBOs differentiation aspects:
Whether the incumbent management of the target of the buyout is part o
team initiating buyout and invests in the equity of NEWCO
Whether the target firm is a company listed on a stock exchange and incl
public, both institutional and individual, investors as shareholders
Whether the management team consists of incumbent target manageme
includes new managers from outside or a mixture of both.
IBO
Investor buyout
MBO
Management buyout
MBI
Management buyin
BIMBO
Buyin managementbuyout
PTP
Going privatebuyouts
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LEVERAGED BUYOUTS (LBO)
Possible exit strategies for LBOs include
(i) initial public offering, which allows investors to
liquidate ownership interest,
(ii) re-capitalization which allows equity holders to
realize a return by taking a sizable dividend, and
(iii) outright or partial sale to another strategic or
financial buyer.
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LEVERAGED BUYOUTS (LBO)
Fine-tuned strategies
Buy-and-build
High-technology buyouts
JV LBOs
Club Deals
PIPE
This means:
Low R&D level -> High R&D level
Low risk business -> High risk business
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ACQUISITIONTHE DECISION MAKING PROCESSTHE TARGET SELECTION
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ACQUISITIONTHE DECISION MAKING PROCESS
Economic,Strategic
Financial evaluation.
Costs and benefits of the acquisition.
Rationalistperspective
Organizational context relevant
Acquisition process starts with an idea
Progresses through acquisitionjustification.
Organizationalprocess
perspective
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ACQUISITIONTHE DECISION MAKING PROCESS
OOpt
OverConfidence
Hubris Representativeness
Availability
Anchoring
Prospect theory
Directors can institutionalize a devils advocate whose function is make a
serious case as to why the deal should not be done.
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ACQUISITIONTHE TARGET SELECTION
Value creation sources:
Cost savings
Revenue enhancement
New growth opportunities
Public vs Private
Small vs Large
Consolidation in fragmente
Add-on or bolt-on acqu
Platform acquisition or le
Buy-build-operate (BBO
Buy-build-sell (BBS)
IPO roll-up
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THANKYOU